Corporate governance, disclosure method and information asymmetry
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We examine whether corporate governance affects the level of information asymmetry in the capital market. We hypothesize that firms with stronger corporate gov-ernance would be more likely to voluntarily disclose corporate information using public rather than selective methods, and that this would be associated with lower levels of in-formation asymmetry. We carefully establish the path through which corporate govern-ance affects a firm’s voluntary disclosure method based on previous literature. Surpris-ingly, in full sample analysis we find that firms with stronger corporate governance (as measured by Gompers et al.’s, 2003, G index) are associated with higher levels of infor-mation asymmetry (as measured by Easley et al.’s, 1996, PIN). In subsample analysis, we find that, consistent with our hypothesis, for the most weakly governed firms, stronger corporate governance is associated with lower information asymmetry, and the impact of corporate governance on information asymmetry is more pronounced than that of firms with moderate and strong corporate governance. To further test our hypothesis, we consider the external effect of Regulation Fair Disclosure on the disclosure method to examine the corporate governance-information asymmetry relationship. Consistent with our hypothesis, our evidence suggests that by forbidding the practice of selective disclosure, the regulation significantly decreases the impact of corporate governance on information asymmetry level.
DegreeMaster of Science (M.Sc.)
DepartmentFinance and Management Science
ProgramFinance and Management Science
CommitteeRacine, Marie; Wu, Zhenyu; Dev, Mishra; Trabelsi, Samir
Copyright DateOctober 2009